The Securities and Exchange Commission (SEC) has approved a new rule proposed by NYSE American LLC to strengthen its listing standards for companies that conduct reverse stock splits. According to the rule, a company will face immediate suspension and delisting if it has executed one or more reverse stock splits with a cumulative ratio of 200 shares or more to one in the past two years, or if its reverse stock split makes it fall below existing listing requirements. The SEC believes this measure will help protect investors by ensuring that companies with financial difficulties do not unduly remain on the exchange by manipulating their stock prices through reverse stock splits. Companies affected by this rule still have the opportunity to challenge delisting decisions.
Simple Explanation
The new rule says that if a company tries to "clean up" its stock price by doing too many "reverse splits" (which is like turning 200 small candies into 1 big candy), and still doesn't meet the basic rules to stay in the club (or stock market), it will have to leave right away. The people in charge want to make sure that companies can't trick others into thinking they're doing better than they really are.